Tax credit expiration has real estate agents concerned

Tim Landis

Friday

Sep 25, 2009 at 12:01 AMSep 25, 2009 at 5:19 PM

Courtney and Ian Wick weren’t even in the market for a home until they learned of the $8,000 federal tax credit for first-time buyers. They closed on a new residence in July. The federal tax break, scheduled to expire Dec. 1, is credited in the real-estate industry with stabilizing one of the worst housing markets in decades. But critics say the program cost twice what was expected and in many cases paid buyers who would have purchased a home anyway.

Courtney and Ian Wick weren’t even in the market for a home until they learned of the $8,000 federal tax credit for first-time buyers.

They closed on a new residence in July.

“I wouldn’t even have gone out looking for a home had I not known about the tax credit,” said Courtney Wick, who said the couple found plenty of houses in their price range of $120,000 to $130,000.

They settled on a home just off the intersection of Chatham Road and Wabash Avenue in Springfield.

The federal tax break, scheduled to expire Dec. 1, is credited in the real-estate industry with stabilizing one of the worst housing markets in decades. But critics say the program cost twice what was expected and in many cases paid buyers who would have purchased a home anyway.

After release of a report Thursday showing local home sales up 6.9 percent in August, Capital Area Association of Realtors president Nancy Long said she is concerned allowing the tax credit to expire could result in a “double-dip recession.”

“I would say a good portion of the purchases are by people utilizing the tax credit, so it is a concern,” Long said.

She said the more than 600 members of the local association have been asked to join a National Association of Realtors lobbying effort to extend the tax credit by contacting members of the Illinois congressional delegation.

“We’re told there’s about a 50-50 chance it will be renewed. … We don’t want people to hang their hats on it,” Long said.

The national association said extension of the tax credit is “critical to preserve incentives for financially qualified buyers to enter the market.”

Several plans have been floated in Congress to extend, or even expand, the tax credit. One of the more generous would raise the credit to $15,000 and extend it by a year to all buyers, regardless of income.

An analysis released Thursday by The Brookings Institute said extension of the credit “would be a mistake” at a time when the federal debt is soaring. The estimated $15 billion cost of the tax credit is twice what was projected when the program started.

The study also warned that an extension might re-inflate the housing bubble that caused the crisis in the first place.

Executive vice president Kristina Rasmussen of the Illinois Policy Institute in Springfield said tax credits play an important role in economic development, including encouraging home ownership.

But Rasmussen pointed out home ownership already comes with a variety of tax breaks, including deductions for mortgage interest and real-estate taxes. Rasmussen also said tax breaks for one group eventually must be offset by higher tax revenues from others.

“This tax credit was passed when people were doubting the very underpinnings of our system. They wanted people to keep buying, and now we have to reconsider whether it is an appropriate tool for home ownership,” she said.

Tim Landis can be reached at (217) 788-1536 or tim.landis@sj-r.com.

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